FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(X) QUARTERLY REPORT UNDER SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
OR ( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter ended September 30, 2000
Commission File Number 0-22489
SMITH BARNEY PRINCIPAL PLUS FUTURES FUND L.P. II
(Exact name of registrant as specified in its charter)
New York 13-3862967
-------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
c/o Smith Barney Futures Management LLC
388 Greenwich St. - 7th Fl.
New York, New York 10013
(Address and Zip Code of principal executive offices)
(212) 723-5424
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
<PAGE>
SMITH BARNEY PRINCIPAL PLUS FUTURES FUND L.P. II
FORM 10-Q
INDEX
Page
Number
PART I - Financial Information:
Item 1. Financial Statements:
Statement of Financial Condition at
September 30, 2000 and December 31,
1999 (unaudited). 3
Statement of Income and Expenses
and Partners' Capital for the three
and nine months ended September 30,
2000 and 1999 (unaudited). 4
Notes to Financial Statements
(unaudited) 5 - 9
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 10 - 11
Item 3. Quantitative and Qualitative Disclosures
of Market Risk 12 - 13
PART II - Other Information 14
2
<PAGE>
PART I
Item 1. Financial Statements
SMITH BARNEY PRINCIPAL PLUS FUTURES FUND L.P.II
STATEMENT OF FINANCIAL CONDITION
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------ ------------
<S> <C> <C>
ASSETS:
Equity in commodity futures trading account:
Cash $ 4,656,109 $ 6,813,826
Net unrealized appreciation (depreciation)
on open contracts (121,999) 313,668
Zero coupons, $12,889,000 and $15,341,000 principal
amount in 2000 and 1999, respectively,
due November 15, 2003 at market value
(amortized cost $10,609,875 and $12,033,954
in 2000 and 1999, respectively) 10,770,435 12,011,850
------------ ------------
15,304,545 19,139,344
Receivable from SSB on sale of Zero Coupons 697,991 322,229
Interest income 20,527 24,463
------------ ------------
$ 16,023,063 $ 19,486,036
============ ============
LIABILITIES AND PARTNERS' CAPITAL:
Liabilities:
Accrued expenses:
Commissions $ 37,002 $ 62,619
Management fees 6,207 27,821
Other 31,399 42,336
Redemptions payable 972,527 506,158
------------ ------------
1,047,135 638,934
------------ ------------
Partners' Capital:
General Partner, 203 Unit equivalents
outstanding in 2000 and 1999 235,870 249,394
Limited Partners, 12,686 and 15,138 Units of
Limited Partnership Interest outstanding
in 2000 and 1999, respectively 14,740,058 18,597,708
------------ ------------
14,975,928 18,847,102
------------ ------------
$ 16,023,063 $ 19,486,036
============ ============
</TABLE>
See Notes to Financial Statements.
3
<PAGE>
SMITH BARNEY PRINCIPAL PLUS FUTURES FUND L.P.II
STATEMENT OF INCOME AND EXPENSES AND PARTNERS' CAPITAL
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------ ----------------------------
2000 1999 2000 1999
------------------------------ ----------------------------
<S> <C> <C> <C> <C>
Income:
Net gains (losses) on trading of commodity
futures:
Realized gains (losses) on closed positions $ (465,786) $ 303,764 $ (803,576) $ 978,854
Change in unrealized losses on open
positions (156,883) (1,020,476) (435,667) (385,705)
------------ ------------ ------------ ------------
(622,669) (716,712) (1,239,243) 593,149
Less, brokerage commissions including clearing
fees of $10,755, $6,628, $26,991 and
$19,441, respectively (135,938) (242,734) (485,580) (732,256)
------------ ------------ ------------ ------------
Net realized and unrealized losses (758,607) (959,446) (1,724,823) (139,107)
Gain on sale of Zero Coupons 8,995 3,025 9,946 26,656
Unrealized appreciation (depreciation)
on Zero Coupons 62,361 (83,711) 182,664 (844,450)
Interest income 241,625 285,400 741,498 836,880
------------ ------------ ------------ ------------
(445,626) (754,732) (790,715) (120,021)
------------ ------------ ------------ ------------
Expenses:
Management fees 19,383 101,119 157,603 303,179
Other 10,553 8,733 34,404 38,844
Incentive fees -- -- -- 20,500
------------ ------------ ------------ ------------
29,936 109,852 192,007 362,523
------------ ------------ ------------ ------------
Net loss (475,562) (864,584) (982,722) (482,544)
Redemptions (972,527) (389,274) (2,888,452) (1,454,840)
------------ ------------ ------------ ------------
Net decrease in Partners' capital (1,448,089) (1,253,858) (3,871,174) (1,937,384)
Partners' capital, beginning of period 16,424,017 22,254,628 18,847,102 22,938,154
------------ ------------ ------------ ------------
Partners' capital, end of period $ 14,975,928 $ 21,000,770 $ 14,975,928 $ 21,000,770
------------ ------------ ------------ ------------
Net asset value per Unit
( 12,889 and 15,753 Units outstanding
at September 30, 2000 and 1999, respectively) $ 1,161.92 $ 1,333.13 $ 1,161.92 $ 1,333.13
------------ ------------ ------------ ------------
Net loss per Unit of Limited Partnership
Interest and General Partner Unit equivalent $ (34.64) $ (53.88) $ (66.62) $ (29.15)
------------ ------------ ------------ ------------
</TABLE>
See Notes to Financial Statements
4
<PAGE>
Smith Barney Principal Plus Futures Fund L.P. II
Notes to Financial Statements
September 30, 2000
(Unaudited)
1. General
Smith Barney Principal Plus Futures Fund L.P. II (the "Partnership") was
formed under the laws of the State of New York on November 16, 1995. The
Partnership engages in the speculative trading of a diversified portfolio of
commodity interests, including futures contracts, options and forward contracts.
The commodity interests that are traded by the Partnership are volatile and
involve a high degree of market risk. The Partnership maintains a portion of its
assets in principal amounts stripped from U.S. Treasury Bonds under the
Treasury's STRIPS program which payments are due approximately seven years from
the date trading commenced ("Zero Coupons").
Between April 3, 1996 (commencement of offering period) and August 8, 1996,
19,896 Units of limited partnership interest were sold at $1,000 per unit. The
proceeds of the offering were held in an escrow account until August 9, 1996, at
which time they were turned over to the Partnership for trading.
Smith Barney Futures Management LLC acts as the general partner (the
"General Partner") of the Partnership. The Partnership's commodity broker is
Salomon Smith Barney Inc. ("SSB"). SSB is an affiliate of the General Partner.
The General Partner is wholly owned by Salomon Smith Barney Holdings Inc.
("SSBHI"), which is the sole owner of SSB. SSBHI is a wholly owned subsidiary of
Citigroup Inc. As of September 30, 2000, all trading decisions are made for the
Partnership by Winton Capital Management Ltd. and Willowbridge Associates Inc.
(collectively, the "Advisors"). Effective July 1, 2000, John W. Henry and
Company, Inc. was terminated as an Advisor to the Partnership and Winton Capital
Management Ltd. was added.
The accompanying financial statements are unaudited but, in the opinion of
management, include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the Partnership's financial
condition at September 30, 2000 and December 31, 1999 and the results of its
operations for the three and nine months ended September 30, 2000 and 1999.
These financial statements present the results of interim periods and do not
include all disclosures normally provided in annual financial statements. It is
suggested that these financial statements be read in conjunction with the
Partnership's annual report on Form 10-K filed with the Securities and Exchange
Commission for the year ended December 31, 1999.
Due to the nature of commodity trading, the results of operations for the
interim periods presented should not be considered indicative of the results
that may be expected for the entire year.
5
<PAGE>
Smith Barney Principal Plus Futures Fund L.P. II
Notes to Financial Statements
September 30, 2000
(Unaudited)
(Continued)
2. Net Asset Value Per Unit:
Changes in net asset value per Unit for the three and nine months ended
September 30, 2000 and 1999 were as follows:
<TABLE>
<CAPTION>
THREE-MONTHS ENDED NINE-MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2000 1999 2000 1999
--------- -------- ---------- --------
<S> <C> <C> <C> <C>
Net realized and unrealized
losses $ (55.27) $ (59.80) $ (118.43) $ (8.69)
Realized and unrealized gains
(losses) on Zero Coupons 5.20 (5.03) 13.55 (49.37)
Interest income 17.60 17.79 51.37 50.97
Expenses (2.17) (6.84) (13.11) (22.06)
--------- --------- --------- ---------
Decrease for period (34.64) (53.88) (66.62) (29.15)
Net Asset Value per Unit,
beginning of period 1,196.56 1,387.01 1,228.54 1,362.28
--------- --------- --------- ---------
Net Asset Value per Unit
end of period $ 1,161.92 $ 1,333.13 $ 1,161.92 $ 1,333.13
========= ========= ========= =========
</TABLE>
6
<PAGE>
Smith Barney Principal Plus Futures Fund L.P. II
Notes to Financial Statements
September 30, 2000
(Unaudited)
(Continued)
3. Trading Activities:
The Partnership was formed for the purpose of trading contracts in a
variety of commodity interests, including derivative financial instruments and
derivative commodity instruments. The results of the Partnership's trading
activity are shown in the statement of income and expenses.
The Customer Agreement between the Partnership and SSB gives the
Partnership the legal right to net unrealized gains and losses.
All of the commodity interests owned by the Partnership are held for
trading purposes. The average fair value during the periods ended September 30,
2000 and December 31, 1999, based on a monthly calculation, was $512,769 and
$855,578, respectively. The fair value of these commodity interests, including
options thereon, if applicable, at September 30, 2000 and December 31, 1999, was
$(121,999) and $313,668, respectively, as detailed below.
Fair Value
September 30, December 31,
2000 1999
---------- -----------
Currency:
- Exchange Traded Contracts $ (42,432) $ 83,435
- OTC -- (72,633)
Energy (91,370) 41,632
Grains 9,255 (3,896)
Interest Rates U.S. 37,378 163,531
Interest Rates Non-U.S 48,207 (42,138)
Livestock 8,638 (4,260)
Metals (28,042) 53,025
Softs (8,864) 74,572
Indices (57,145) 20,400
Lumber 2,376 --
--------- ---------
Total $(121,999) $ 313,668
========= =========
7
<PAGE>
Smith Barney Principal Plus Futures Fund L.P. II
Notes to Financial Statements
September 30, 2000
(Unaudited)
(Continued)
4. Financial Instrument Risk:
The Partnership is party to financial instruments with off-balance
sheet risk, including derivative financial instruments and derivative commodity
instruments, in the normal course of its business. These financial instruments
may include forwards, futures and options, whose value is based upon an
underlying asset, index, or reference rate, and generally represent future
commitments to exchange currencies or cash flows, to purchase or sell other
financial instruments at specific terms at specified future dates, or, in the
case of derivative commodity instruments, to have a reasonable possibility to be
settled in cash, through physical delivery or with another financial instrument.
These instruments may be traded on an exchange or over-the-counter ("OTC").
Exchange traded instruments are standardized and include futures and certain
option contracts. OTC contracts are negotiated between contracting parties and
include forwards and certain options. Each of these instruments is subject to
various risks similar to those related to the underlying financial instruments
including market and credit risk. In general, the risks associated with OTC
contracts are greater than those associated with exchange traded instruments
because of the greater risk of default by the counterparty to an OTC contract.
Market risk is the potential for changes in the value of the
financial instruments traded by the Partnership due to market changes, including
interest and foreign exchange rate movements and fluctuations in commodity or
security prices. Market risk is directly impacted by the volatility and
liquidity in the markets in which the related underlying assets are traded.
Credit risk is the possibility that a loss may occur due to the
failure of a counterparty to perform according to the terms of a contract.
Credit risk with respect to exchange traded instruments is reduced to the extent
that an exchange or clearing organization acts as a counterparty to the
transactions. The Partnership's risk of loss in the event of counterparty
default is typically limited to the amounts recognized in the statement of
financial condition and not represented by the contract or notional amounts of
the instruments. The Partnership has concentration risk because the sole
counterparty or broker with respect to the Partnership's assets is SSB.
8
<PAGE>
Smith Barney Principal Plus Futures Fund L.P. II
Notes to Financial Statements
September 30, 2000
(Unaudited)
(Continued)
The General Partner monitors and controls the Partnership's risk
exposure on a daily basis through financial, credit and risk management
monitoring systems and accordingly believes that it has effective procedures for
evaluating and limiting the credit and market risks to which the Partnership is
subject. These monitoring systems allow the General Partner to statistically
analyze actual trading results with risk adjusted performance indicators and
correlation statistics. In addition, on-line monitoring systems provide account
analysis of futures, forwards and options positions by sector, margin
requirements, gain and loss transactions and collateral positions.
The notional or contractual amounts of these instruments, while not
recorded in the financial statements, reflect the extent of the Partnership's
involvement in these instruments. The majority of these instruments mature
within one year of September 30, 2000. However, due to the nature of the
Partnership's business, these instruments may not be held to maturity.
9
<PAGE>
PART I
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Liquidity and Capital Resources
The Partnership does not engage in the sale of goods or services. Its
only assets are its equity in its commodity futures trading account, consisting
of cash and cash equivalents, Zero Coupons, net unrealized appreciation
(depreciation) on open futures and forward contracts, commodity options and
interest receivable. Because of the low margin deposits normally required in
commodity futures trading, relatively small price movements may result in
substantial losses to the Partnership. While substantial losses could lead to a
substantial decrease in liquidity no such losses occurred during the third
quarter of 2000.
The Partnership's capital consists of capital contributions, as
increased or decreased by gains or losses on commodity futures trading and Zero
Coupons, expenses, interest income, redemptions of Units and distributions of
profits, if any.
For the nine months ended September 30, 2000, Partnership capital
decreased 20.5% from $18,847,102 to $14,975,928. This decrease was attributable
to the redemption of 2,452 Units totaling $2,888,452 coupled with a net loss
from operations of $982,722 for the nine months ended September 30, 2000. Future
redemptions can impact the amount of funds available for investments in
commodity contract positions in subsequent periods.
Results of Operations
During the Partnership's third quarter of 2000, the net asset value per
unit decreased 2.9% from $1,196.56 to $1,161.92 as compared to an decrease of
3.9% in the third quarter of 1999. The Partnership experienced a net trading
loss before brokerage commissions and related fees in the third quarter of 2000
of $622,669. Losses were primarily attributable to the trading of commodity
contracts in currencies, grains, non-U.S. interest rates, livestock, metals,
softs and indices and were partially offset by gains in U.S. interest rates and
energy. The Partnership experienced a net trading loss before brokerage
commissions and related fees in the third quarter of 1999 of $716,712. Losses
were primarily attributable to the trading of commodity contracts in currencies,
grains, U.S. interest rates, softs, metals and indices and were partially offset
by gains in livestock, energy and non-U.S. interest rates.
10
<PAGE>
Commodity futures markets are highly volatile. Broad price fluctuations
and rapid inflation increase the risks involved in commodity trading, but also
increase the possibility of profit. The profitability of the Partnership depends
on the existence of major price trends and the ability of the Advisors to
identify correctly those price trends. Price trends are influenced by, among
other things, changing supply and demand relationships, weather, governmental,
agricultural, commercial and trade programs and policies, national and
international political and economic events and changes in interest rates. To
the extent that market trends exist and the Advisors are able to identify them,
the Partnership expects to increase capital through operations.
Interest Income on 80% of the Partnership's daily equity maintained in
cash was earned at the 30-day U.S. Treasury bill rate determined weekly by SSB
based on the average non-competitive yield on 3-month U.S. Treasury bills
maturing in 30 days. Interest income for the three and nine months ended
September 30, 2000 decreased by $43,775 and $95,382, respectively, as compared
to the corresponding periods in 1999. The decrease in interest income is
primarily due to the effect of redemptions on the Partnership's equity
maintained in cash during the nine month period ended September 30, 2000.
Brokerage commissions are calculated on the adjusted net asset value on
the last day of each month and are affected by trading performance and
redemptions. Accordingly, they must be compared in relation to the fluctuations
in the monthly net asset value. Brokerage commissions and fees for the three and
nine months ended September 30, 2000 decreased by $106,796 and $246,676,
respectively, as compared to the corresponding periods in 1999.
Management fees are calculated as a percentage of the Partnership's net
asset value as of the end of each month and are affected by trading performance
and redemptions. Management fees decreased by $81,736 and $145,576,
respectively, as compared to the corresponding periods in 1999.
Incentive fees are based on the new trading profits generated by each
Advisor as defined in the advisory agreements between the Partnership, the
General Partner and each Advisor. There were no incentive fees earned for the
three and nine months ended September 30, 2000. Trading performance for the
three and nine months ended September 30, 1999 resulted in incentive fees of $0
and $20,500.
11
<PAGE>
Item 3. Quantitative and Qualitative Disclosures of Market Risk
The Partnership is a speculative commodity pool. The market sensitive
instruments held by it are acquired for speculative trading purposes, and all
or substantially all of the Partnership's assets are subject to the risk of
trading loss. Unlike an operating company, the risk of market sensitive
instruments is integral, not incidental, to the Partnership's main line of
business.
Market movements result in frequent changes in the fair market value
of the Partnership's open positions and, consequently, in its earnings and
cash flow. The Partnership's market risk is influenced by a wide variety of
factors, including the level and volatility of interest rates, exchange rates,
equity price levels, the market value of financial instruments and contracts,
the diversification effects among the Partnership's open positions and the
liquidity of the markets in which it trades.
The Partnership rapidly acquires and liquidates both long and short
positions in a wide range of different markets. Consequently, it is not
possible to predict how a particular future market scenario will affect
performance, and the Partnership's past performance is not necessarily
indicative of its future results.
Value at Risk is a measure of the maximum amount which the
Partnership could reasonably be expected to lose in a given market sector.
However, the inherent uncertainty of the Partnership's speculative trading and
the recurrence in the markets traded by the Partnership of market movements
far exceeding expectations could result in actual trading or non-trading
losses far beyond the indicated Value at Risk or the Partnership's experience
to date (i.e., "risk of ruin"). In light of the foregoing as well as the risks
and uncertainties intrinsic to all future projections, the inclusion of the
quantification included in this section should not be considered to constitute
any assurance or representation that the Partnership's losses in any market
sector will be limited to Value at Risk or by the Partnership's attempts to
manage its market risk.
Exchange maintenance margin requirements have been used by the
Partnership as the measure of its Value at Risk. Maintenance margin requirements
are set by exchanges to equal or exceed the maximum losses reasonably expected
to be incurred in the fair value of any given contract in 95%-99% of any one-day
intervals. Maintenance margin has been used rather than the more generally
available initial margin, because initial margin includes a credit risk
component, which is not relevant to Value at Risk.
12
<PAGE>
The following table indicates the trading Value at Risk associated with
the Partnership's open positions by market category as of September 30, 2000.
All open position trading risk exposures of the Partnership have been included
in calculating the figures set forth below. As of September 30, 2000, the
Partnership's total capitalization was $14,975,928. There has been no material
change in the trading Value at Risk information previously disclosed in the Form
10-K for the year ended December 31, 1999.
September 30, 2000
(Unaudited)
Year to Date
% of Total High Low
Market Sector Value at Risk Capitalization Value at Risk
--------------------------------------------------------------------------------
Currencies:
- Exchange Traded Contracts $ 194,951 1.30% $ 330,883 $ 53,445
Energy 199,600 1.33% 790,700 98,000
Grains 71,471 0.48% 209,900 6,300
Interest Rates U.S. 92,600 0.62% 272,600 24,000
Interest Rates Non-U.S 273,425 1.83% 736,677 170,842
Livestock 21,320 0.14% 37,400 4,500
Metals 137,275 0.92% 300,550 18,000
Softs 109,506 0.73% 161,939 21,500
Indices 133,827 0.89% 303,411 125,083
Lumber 3,300 0.02% 3,300 1,100
--------- ------
Total $1,237,275 8.26%
========== ======
13
<PAGE>
PART II OTHER INFORMATION
Item 1. Legal Proceedings -
For information concerning the matter entitled MKP Master Fund, LDC et al. v.
Salomon Smith Barney Inc., see the description that appears in the ninth
paragraph under the caption "Legal Proceedings" of the Annual Report on Form
10-K of the Partnership for the year ended December 31, 1999. In September 2000,
the court denied plaintiffs' motion to dismiss SSB's counterclaims based on
indemnification and contribution.
Item 2. Changes in Securities and Use of Proceeds - None
Item 3. Defaults Upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders - None
Item 5. Other Information - None
Item 6. (a) Exhibits - None
(b) Reports on Form 8-K - None
14
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
SMITH BARNEY PRINCIPAL PLUS FUTURES FUND L.P. II
By: Smith Barney Futures Management LLC
(General Partner)
By: /s/ David J. Vogel, President
David J. Vogel, President
Date: 11/14/00
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
By: Smith Barney Futures Management LLC
(General Partner)
By: /s/ David J. Vogel, President
David J. Vogel, President
Date: 11/14/00
By: /s/ Daniel A. Dantuono
Daniel A. Dantuono
Chief Financial Officer and
Director
Date: 11/14/00
15
